2002 - Gcc

Transcription

2002 - Gcc

Grupo Cementos de Chihuahua
PURPOSE
To contribute to the development of a better
world with innovative and profitable solutions
for the construction industry while developing
and sustaining world class competencies.
GRUPO CEMENTOS DE CHIHUAHUA / 2002 ANNUAL REPORT
GCC
CONTENTS
1
FINANCIAL HIGHLIGHTS
2
REPORT FROM THE CHAIRMAN
8
MEXICO DIVISION
12
UNITED STATES DIVISION
16
BOARD OF DIRECTORS
16
CORPORATE GOVERNANCE
ANNUAL REPORT
17
EXECUTIVE STAFF MEMBERS
2002
18
FINANCIAL INFORMATION
PURPOSE
GCC
CONTENTS
1
2
8
MEXICO DIVISION
12
16
BOARD OF DIRECTORS
16
ANNUAL REPORT
17
2002
18
COMPANY
PROFILE
OPERATION
INVESTOR
RELATIONS
CENTERS
NORTH DAKOTA
MONTANA
Grupo Cementos de Chihuahua is a leading corporation that participates in the
MINNESOTA
WATERTOWN
construction industry, both in Mexico and the United States.
SOUTH DAKOTA
BROOKINGS
MOORCROFT
RAPID CITY
SIOUX FALLS
CASPER
The company produces and distributes cement and concrete. In addition, GCC is the
WYOMING
leader in the aggregates, concrete block and plaster gypsum markets in the state of
NEBRASKA
Chihuahua.
DENVER
COLORADO
Its annual cement production capacity is 3.3 million tons, of which 1.4 million tons
KANSAS
are located in the states of New Mexico and South Dakota, in the United States. The
remaining capacity of 1.9 million tons is located in the state of Chihuahua, Mexico.
ALBUQUERQUE
TIJERAS
NEW MEXICO
Grupo Cementos de Chihuahua is listed in the Mexican Stock Exchange, and trades
under the ticker symbol GCC.
CD. JUÁREZ
EL PASO
TEXAS
SAMALAYUCA
HEADQUARTERS
CHIHUAHUA
OFFICE
CHIHUAHUA
Vicente Suárez y Sexta
Nombre de Dios, 31110
Chihuahua. Chih., Mexico
STRATEGIC
(52 614) 442 3100
INTENT
www.gcc.com
INVESTOR
CEMENT
CEMENT
DISTRIBUTION & TRANSFER CENTERS
PLANTS
RELATIONS
CEMENT PRODUCTION CAPACITY
(METRIC TONS)
To become the most profitable company in our
industry, with the lowest total cost, and leader in
Denver, Colorado
Samalayuca, Chihuahua
900,000
Brookings, South Dakota
Chihuahua, Chihuahua
885,000
Sioux Falls, South Dakota
Cd. Juárez, Chihuahua
140,000
Watertown, South Dakota
Tijeras, New Mexico
450,000
Albuquerque, New Mexico
Rapid City, South Dakota
950,000
El Paso, Texas
Luis Carlos Arias Laso
[email protected]
(52 614) 442 3217
(52 614) 442 3100
Casper, Wyoming
Moorcroft, Wyoming
the creation of innovative solutions for our
CONCRETE
OPERATIONS
CONCRETE BLOCK
The annual Stockholders’ Meeting of Grupo Cementos de Chihuahua, S.A. de C.V. was held
OPERATIONS
at 5:00 p.m. on April 29, 2003 at the Hotel Westin Soberano located at Barrancas del
Chihuahua: 2 plants
Rest of the State: 6 plants
Cd. Juárez: 3 plants
AGGREGATES
Chihuahua: 1 plant
Cobre 3211 Chihuahua, Chih., Mexico.
Shares representing the capital stock of Grupo Cementos de Chihuahua, S.A. de C.V. are
OPERATIONS
Design:
customers needs.
Chihuahua: 4 plants
milenio3.com.mx
listed on the Mexican Stock Exchange (BMV) under the ticker symbol GCC.
COMPANY
PROFILE
OPERATION
INVESTOR
RELATIONS
CENTERS
NORTH DAKOTA
MONTANA
MINNESOTA
WATERTOWN
SOUTH DAKOTA
BROOKINGS
MOORCROFT
RAPID CITY
SIOUX FALLS
CASPER
WYOMING
NEBRASKA
Chihuahua.
DENVER
COLORADO
KANSAS
ALBUQUERQUE
TIJERAS
NEW MEXICO
CD. JUÁREZ
EL PASO
TEXAS
SAMALAYUCA
HEADQUARTERS
CHIHUAHUA
OFFICE
CHIHUAHUA
STRATEGIC
(52 614) 442 3100
INTENT
www.gcc.com
INVESTOR
CEMENT
CEMENT
PLANTS
RELATIONS
(METRIC TONS)
Denver, Colorado
900,000
885,000
140,000
Tijeras, New Mexico
450,000
950,000
El Paso, Texas
[email protected]
(52 614) 442 3217
(52 614) 442 3100
Casper, Wyoming
Moorcroft, Wyoming
CONCRETE
OPERATIONS
CONCRETE BLOCK
OPERATIONS
Chihuahua: 2 plants
AGGREGATES
Chihuahua: 1 plant
OPERATIONS
Design:
customers needs.
Chihuahua: 4 plants
milenio3.com.mx
1
FINANCIAL
HIGHLIGHTS
Figures in millions of constant Mexican pesos as of December 31, 2002.
2002
2001
02/01
2000
1999
1998
3,456
3,819
-9.5%
3,133
2,803
2,609
Sales in Mexico
1,861
2,141
-13.0%
2,095
1,787
1,566
Sales in United States
1,594
1,678
-5.0%
1,038
1,016
1,043
888
989
-10.2%
867
780
737
1,215
1,286
-5.6%
1,077
991
949
Comprehensive Financing Cost
-12
59
NA
-52
79
94
Net Consolidated Income
618
581
6.3%
556
444
433
Total Assets
8,884
8,382
6.0%
5,937
5,895
5,976
Total Liabilities
4,425
4,219
4.9%
2,381
1,549
1,656
Total Stockholders’ Equity
4,459
4,163
7.1%
3,556
4,346
4,320
Book Value Per Share ($)
13.42
12.53
10.67
13.02
12.83
Earnings Per Share ($)
1.86
1.75
1.67
1.33
1.30
Operating Cash Flow / Net Sales
35.1%
33.7%
34.4%
35.4%
36.4%
Net Income / Net Sales
17.9%
15.2%
17.7%
15.8%
16.6%
Interest Coverage (EBITDA / Financial Expenses)
11.36
7.01
8.97
6.23
5.52
Current Assets / Current Liabilities (Times)
6.00
4.32
3.53
4.27
3.73
Debt / Operating Cash Flow (Times)
2.19
1.97
0.76
1.19
1.47
Debt-Cash / Operating Cash Flow (Times)
0.96
1.22
0.09
0.47
0.82
332,185
332,097
332,977
336,794
332,831
Net Sales
Operating Income
Operating Cash Flow*
Outstanding Shares (thousands)
NET SALES
OPERATING INCOME
OPERATING CASH FLOW*
NET CONSOLIDATED INCOME
million pesos
million pesos
million pesos
million pesos
3,819
989
3,456
3,133
737
2,803
1,286
1999
2000
2001
2002
1998
780
950
1999
2000
618
1,078
2,609
1998
1,215
888
867
2001
2002
* Operating Cash Flow (EBITDA) = Operating Income + Depreciation and Amortization
1998
556
991
1999
2000
2001
2002
433
444
1998
1999
2000
581
2001
2002
2
GRUPO CEMENTOS DE CHIHUAHUA
GCC implemented a
strategy to mitigate the
Sales in Mexico represented 53.9%
of GCC sales. The remainder of the
effect of the economic
sales was made in the U.S.
weakness of Mexico
and the United States.
SALES DISTRIBUTION BY DIVISION
46.1%
53.9%
MEXICO
UNTED STATES
REPORT OF THE CHAIRMAN OF THE BOARD
REPORT OF THE
CHAIRMAN
OF THE BOARD
During 2002, the markets in which Grupo
Cementos de Chihuahua conducts its activities, the state
of Chihuahua in Mexico and the Mountain region of the
United States, were undergoing a difficult economic
situation. Nevertheless, GCC implemented a strategy to
mitigate the effect of the economic weakness of both
markets.
In Mexico, after a process of contraction during almost all of
2001, the economy began a recovery phase during the
second quarter of 2002. This new expansion phase was not
strong enough for the different economic sectors to continue
their development.
The weakness of the recovery was reflected in Mexico’s GDP
growth rate of only 0.9% in 2002, due to a combination of the
following factors: uncertainty of the United States economic
recovery, geopolitical conflicts throughout the world, volatility
on the world’s major stock markets as a result of accounting
irregularities, and difficulty in reaching the necessary
agreements for the structural reforms needed in the Mexican
economy to achieve sustained growth.
3
4
During 2002, the growth rate of the construction industry was
Demand for cement in the U.S. fell 4% in 2002, reaching
1.7%, which helped the cement demand in Mexico to grow
103.8 million metric tons. Due to the increase in installed
4.0%.
production capacity in the country, as well as the weakening
of the construction sector, cement imports dropped 7%.
Forecasts indicate that economic activity will improve in
2003. However, if external factors do not improve, particularly
The following are some of the highlights of Grupo Cementos
the U.S. economy, and if the reforms that will allow Mexico to
de Chihuahua’s performance during 2002:
modernize its economic structure are not implemented, it will
be difficult to achieve the growth and job creation forecasted.
• Net sales of Grupo Cementos de Chihuahua were $3,455.8
million pesos, a 9.5% decline compared to 2001 sales.
In the United States the economy grew 2.4%, thanks to
This is due mainly to lower cement and ready-mix concrete
greater levels of personal consumption, public spending, and
sales volumes in Mexico and the United States as a result
inventories. This growth was relatively low, considering that
of the economic weakness in both countries.
during 2001, the U.S. economy was under a recession.
• Mexico is still the country that concentrates the greatest
As a result of the global economic situation, during 2002
portion of GCC sales. The company’s sales in Mexico
interest rates in Mexico kept their low levels, while in the
represented 53.9% of total sales, at $1,861.5 million pesos.
United States they continued a declining trend.
• The remaining 46.1% of sales were made in the United
States, a total of US$152.4 million, equivalent to $1,594.3
million pesos.
For the purpose of mitigating the
effect of weakened demand for
• For the purpose of mitigating the effect of weakened
cement in our markets, we
implemented a strategy to reduce
demand for cement in our markets, we implemented a
costs and expenses in all GCC
operations.
strategy to reduce costs and expenses in all GCC
operations.
• This effort translated into tangible benefits, such as a 9.9%
decrease in selling, general and administrative expenses,
TOTAL CEMENT SALES
and a 2.9% reduction in production overhead expenses.
thousands of metric tons
These savings are even more significant if we consider that
2,697
2,523
1,807
2001 included only 9 months of operation of the GCC
Dacotah plant, whereas 2002 expenses correspond to 12
1,826
1,680
months of operations.
• Variable cost as a percentage of sales was reduced from
35.3% to 32.4%. This reduction was the result of the
1998
1999
2000
2001
2002
We are consolidating our growth in
savings obtained due to the reconversion of the fuel supply
the concrete block market.
system for the production processes at the Chihuahua and
Samalayuca cement plants.
• As a result, GCC increased its operating cash flow margin
CONCRETE BLOCK
from 33.7% to 35.1%, and maintained its operating margin
millions of pieces
at the same level of 2001. Operating cash flow and
26.5
28.2
operating income were $1,214.5 million and $888.1 million
20.2
pesos, respectively.
14.8
• In April 2002, we were able to consolidate GCC’s long-term
8.4
debt through a US$100 million syndicated loan which was
funded by six Mexican and foreign financial institutions.
Through this loan, we improved our debt-maturity profile
1998
1999
2000
2001
2002
and reduced our debt-financing costs.
• In addition, we obtained a reduction in the cost of the debt
undertaken in December 2001, which along with lower
The reconversion of the fuel supply
interest rates in the United States, reduced our net
financing cost 52.7%.
• We reduced our comprehensive financing cost 70.8%,
system at the Chihuahua and
Samalayuca cement plants contributed
which changed from a cost of $58.9 million pesos in 2001
to a product of $11.9 million pesos in 2002.
• Our Treasury position rose 55%, from $964.6 million pesos
to $1,494.8 million pesos. This increase allowed us to
reduce 25% our net debt.
• GCC strengthened its net financial ratios during 2002, by
increasing its interest coverage from 10.2 times to 20.4
times and reducing financial leverage from 1.2 times to
only 1.0 times.
Thanks to this solid and healthy financial structure, GCC
will keep its flexibility to continue growing according with
GCC’s strategic business plan.
to the increase in the operating cash
flow margin.
5
6
GCC will continue focusing on
• GCC made total capital expenditures of US$28.3 million,
which will allow us to continue operating efficiently and
optimizing the production and
marketing processes, reducing costs
improving customer service.
Thanks to the success of the start-up of fuel replacement
projects used in the production processes at the Chihuahua
and searching for new growth
and Samalayuca plants, the learning curve was short and
the savings are now a reality. The Samalayuca plant reduced
opportunities.
fuel costs 40%, while fuel savings at the Chihuahua plant
were 31%.
Additionally, with the new limestone aggregates production
• GCC again reached in 2002 a record figure of $617.7 million
plant, which began operations at the end of 2001, we
pesos in net income. This figure represents an increase of
increased efficiency, reduced production costs and provided
17.8% in its sales margin, and it is 6.3% larger than that
better customer service.
of 2001.
Grupo Cementos de Chihuahua keeps its commitment with
• The Mexico Division made capital expenditures for an
its clients and the community, to work with the highest
equivalent of US$14.8 million, mainly in the reconversion
standards of quality and responsibility in environmental
of the fuel supply systems at the cement plants, the
protection. During 2002, GCC obtained several certifications
substitution of transportation equipment, the automation
in quality systems and protection of the environment. The
upgrading of the Chihuahua plant, as well as the
ready-mix concrete production plants received ISO-9002
acquisition of strategic land reserves.
certification and the Chihuahua plant received a “Clean
Industry” certification. This plant and the Samalayuca plant
• The United States Division invested US$13.5 million,
mainly on improvements to the production systems at the
Tijeras plant and the substitution of machinery and
equipment.
obtained re-certification based on ISO-14001 and ISO-9002
standards.
During the second half of the year, GCC divested the assets
7
Grupo Cementos de Chihuahua maintains its
of Rio Grande Materials, the U.S. ready-mix concrete
subsidiary. This decision was made due to the fact that these
commitment to its clients and to the
operations are not part of the current GCC business strategy
plan, and because the subsidiary’s sales and operating cash
community, to work with the highest
flow were minimal in terms of GCC’s consolidated figures.
standards of quality and responsibility in
A great effort was made to convince the Mexican government
to submit the case of the anti-dumping tax levied on the
Mexican
cement
industry
before
the
World
environmental protection.
Trade
Organization. As a result, in January 2003, the consultation
phase began in Geneva, Switzerland. This effort is
However, in the markets where GCC participates, during the
independent of the current litigation process before the
first quarter of 2003, an encouraging increase was seen in
panels of the North American Free Trade Agreement.
the sales volumes of some of our products.
Although the economic expectations for 2003 are more
We reiterate our commitment to continue focusing on
favorable than those of 2002, the recovery of the Mexican
optimizing the production and marketing processes, reducing
and United States economies will not be as fast as expected.
costs and searching for new growth opportunities for GCC.
This will allow us to increase the profitability of our operations
and create value for our shareholders.
On behalf of the Board of Directors, I would like to express
our recognition to our clients, suppliers, investors, financial
institutions and shareholders for their support, and to thank
our staff and personnel at Grupo Cementos de Chihuahua for
their effort and commitment.
Federico Terrazas
CHAIRMAN OF THE BOARD OF DIRECTORS
8
In 2002 the benefits of
the fuel replacement
Sales for the Mexico Division totaled
projects at the Chihuahua
$1,861.5 million pesos in 2002.
and Samalayuca plants
materialized, with
immediate savings.
SALES DISTRIBUTION BY PRODUCT
MEXICO DIVISION
24.8%
18.5%
5.1%
42.9%
8.7%
CEMENT
CONCRETE
AGGREGATES
OTHERS
BLOCK
10
reduction in electric energy used in the
production process.
Moreover, the Mexico Division contributed
to the cost and expenses reduction
program, with a reduction of 13% in the
production overhead expenses and 10%
in selling, general and administrative
expenses.
Due to the success that we achieved in
These savings are evidence of Grupo Cementos de
Chihuahua’s constant efforts to increase profitability in all its
the production and marketing of
concrete block, the sales volumes
business units.
The Chihuahua and Samalayuca plants got re-certification of
its quality systems, based on ISO-14001 and ISO-9002
reached another record figure of 28.2
standards. In addition, the ready-mix concrete production
plants received ISO-9002 certification. Furthermore, the two
million pieces.
cement plants are certified as a “Clean Industry” by the
Ministry of the Environment and Natural Resources.
Due to the success that we achieved in the production and
marketing of concrete block, the sales volumes reached
another record of 28.2 million pieces, 6.6% higher than the
sales obtained during 2001. This was accomplished thanks
to the introduction of new presentations, speed of response
and an aggressive promotion of the advantages of the use of
this product in construction, such as housing. We will
continue efforts to increase our market share in this product,
allowing us to provide greater value added to cement
production.
With the consolidation of operations of the new aggregates
production plant in Chihuahua, which began at the end of
2001, we reduced production costs 42%.
MEXICO DIVISION
WITH THE CONSOLIDATION OF
OPERATIONS OF THE NEW
AGGREGATES PRODUCTION
PLANT IN CHIHUAHUA, WE
REDUCED PRODUCTION
COSTS 42%.
We will continue promoting the
cement uses to increase our
sales volumes.
MEXICO CEMENT SALES
848
773
1998
877
761
743
1999
2000
2001
2002
11
12
UNITED STATES
DIVISION
During 2002, the United States Division consolidated the
growth derived from the integration of GCC Dacotah in 2001.
GCC’s performance in the U.S. market
Sales in the
was carried out in an environment
affected by the weak recovery of the
United States Division totaled
United
States
economy
and
by
uncertainty generated by the threat of war
US$152.4 million, equivalent to
$1,594.3 million pesos.
in the Middle East.
The dynamics of the construction industry
in the United States was driven by strong
government spending and by housing construction as a
result of low interest rates. These two sectors mitigated the
weak situation of the rest of the economy.
Cement demand in the United States fell 4%. In the markets
where GCC participates, there was slight growth in the early
part of 2002, due to the conclusion of several construction
projects begun in 2001. However, throughout the rest of the
year, demand for cement reflected the conditions in the rest
of the economy. An increase in demand is expected in 2003,
thanks to greater government spending and the recovery of
the various economic sectors.
Sales in the United States Division totaled US$152.4 million,
equivalent to $1,594.3 million pesos. This figure represented
46.1% of Grupo Cementos de Chihuahua’s total sales.
During 2002, the
Cement sales in the United States
United States Division
represented 92% of total sales of the U.S.
Division. The rest came from ready-mix
concrete sales.
consolidated the
growth derived from
the integration of GCC
SALES DISTRIBUTION BY PRODUCT
Dacotah in the
previous year.
92%
8%
CEMENT
CONCRETE
13
14
WITHIN THE PROGRAM TO
REDUCE COSTS AND EXPENSES
AT GCC, THE U.S. DIVISION
CONTRIBUTED WITH A
REDUCTION OF 9 AND 3% IN
UNITED STATES CEMENT SALES
FUEL AND ELECTRIC ENERGY,
1,820
1,762
2001
2002
RESPECTIVELY, AT THE GCC
1,034
937
978
1999
2000
DACOTAH PLANT.
1998
15
Cement sales in the United States
represented 92% of total sales of the
U.S. division. The rest came from readymix concrete sales.
During 2002, demand for cement in the
U.S. markets where GCC participates was
supplied with the cement production at
the GCC Rio Grande plant, located in
Tijeras, New Mexico, the GCC Dacotah plant, located in Rapid
GCC Rio Grande achieved a
City, South Dakota, and the Samalayuca plant in Mexico. In
addition, in order to reduce anti-dumping taxes levied on
3.4% reduction in fixed
cement imports from Mexico, GCC purchased cement from
other producers in the United States.
production costs.
Within the program to reduce costs and expenses at GCC, the
U.S. division contributed with greater efficiency in heat and
electric power consumption at the GCC Dacotah plant,
achieving cost reductions of 9 and 3% in fuel and electric
In March, the anti-dumping margin of 55.98% was set for the
energy, respectively. Additionally, the GCC Rio Grande plant
Tenth Administrative Review. In November, the anti-dumping
achieved a 3.4% reduction in fixed production costs.
margin of 74.78% was set for the Eleventh Administrative
Review.
This division continued to incorporate the best business
practices in the different processes, by implementing high-
During 2002, deposits derived from the anti-dumping tax
performance systems and continuous improvement at GCC
were US$7.0 million, and provisions totaled US$8.0 million.
Dacotah, which led to greater efficiency and productivity in
Due to the continuous improvement implemented in the
its operations. Furthermore, to improve the supply chain,
supply chain of the United States division, these deposits and
optimize customer service and reduce cement transportation
provisions were 4.6% lower than in 2001.
costs, construction began on a new distribution terminal in
Denver, Colorado. The new terminal will start up operations
During the month of October 2002, the United States division
in 2003.
divested assets related with the ready-mix concrete
operations, since these operations are not part of the current
The United States Department of Commerce announced the
GCC business strategy plan and because the share of sales
results of the administrative reviews regarding antidumping
and operating cash flow of this subsidiary in GCC’s
taxes levied on Mexican cement imports in the United States.
consolidated figures was minimal.
BOARD OF
DIRECTORS
CHAIRMAN
Federico Terrazas Torres
I,P
BOARD MEMBERS
ALTERNATE BOARD MEMBERS
Mario de la Garza Caballero
Armando García Segovia
I,P
Francisco Garza Zambrano
Miguel Márquez Prieto
Cosme Furlong Madero
César Constain Van-Reck
I,P
Ramiro Villarreal Morales
I,P
P,R
Luis Márquez Villalobos
Jorge Guajardo Touché
I,P
I,P
I,P
I,P
Federico Terrazas Becerra
P,R
Enrique G. Terrazas Torres
I,P
Martha Márquez de Corral
I,P
Salvador Terrazas Baeza
I
I,P
I,P
Miguel Márquez Villalobos
Héctor Medina Aguiar
I,P
I,P
Alberto Terrazas Seyffert
I,P
Luis E. Terrazas Seyffert
I,P
Independent
P Proprietary
R Related
Emilio Touché Fares
I,P
Sergio Rodríguez Alvarado
I,P
Lorenzo Zambrano Treviño
I,P
Juan Romero Torres
P,R
I,P
STATUTORY AUDITORS
ALTERNATE STATUTORY AUDITORS
Humberto Valles Hernández
Américo de la Paz de la Garza
Luis González Parás
Fernando Elizondo Barragán
CORPORATE
GOVERNANCE
AUDITING
PLANNING & FINANCE
COMMITTEE
COMMITTEE
COMPENSATION &
EVALUATION
COMMITTEE
CHAIRMAN
CHAIRMAN
CHAIRMAN
Mario de la Garza Caballero
Armando García Segovia
Cosme Furlong Madero
Francisco Garza Zambrano
Héctor Medina Aguiar
Ramiro Villarreal Morales
Héctor Tamez González
Luis Márquez Villalobos
Federico Terrazas Becerra
Miguel Márquez Villalobos
Luis Enrique Terrazas Seyffert
Alberto Terrazas Seyffert
EXECUTIVE STAFF
MEMBERS
CORPORATE DIRECTOR
Manuel Milán Reyes
Pedro Burciaga Meléndez
CHIEF EXECUTIVE OFFICER
RESEARCH AND DEVELOPMENT VICE PRESIDENT
Rogelio González Lechuga
Francisco Ortega López
MEXICO DIVISION PRESIDENT
ENGINEERING VICE PRESIDENT
Enrique Escalante Ochoa
Jaime Fernández Horcasitas
UNITED STATES DIVISION PRESIDENT
PLANNING VICE PRESIDENT
Martha Rodríguez Rico
José Medina Gutiérrez
CHIEF FINANCIAL OFFICER
CHIEF INFORMATION OFFICER
17
GRUPO CEMENTOS DE CHIHUAHUA, S.A. DE C.V. AND SUBSIDIARIES
FINANCIAL STATEMENTS
CONSOLIDATED
Years ended December 31, 2002 and 2001
CONTENTS
19
REPORT OF INDEPENDENT AUDITORS
AUDITED FINANCIAL STATEMENTS:
20
BALANCE SHEETS
22
STATEMENTS OF INCOME
23
STATEMENTS OF CHANGES IN FINANCIAL POSITION
24
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
26
NOTES TO FINANCIAL STATEMENTS
GRUPO CEMENTOS DE CHIHUAHUA, S. A. DE C. V. AND SUBSIDIARIES
19
Report of Independent Auditors
To the Stockholders of
Grupo Cementos de Chihuahua, S.A. de C.V. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Grupo Cementos de Chihuahua, S.A. de C.V. and Subsidiaries as of December 31, 2002 and
2001, and the related consolidated statements of income, changes in stockholders’ equity and changes in financial position for the years then ended. These financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
The financial statements of some of the subsidiaries were examined by other independent public accountants. The financial statements of these subsidiaries
reflect total assets and operating income that represent 43.2% and 46.1% in 2002 and 42.2% and 43.9% in 2001, respectively, of the related consolidated amounts.
Our opinion, insofar as it relates to the total amounts reported by these subsidiaries, is based on the reports of the other independent public accountants.
We conducted our audits in accordance with auditing standards generally accepted in Mexico. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement and are prepared in conformity with accounting principles
generally accepted in Mexico. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our examinations and on the reports of the other independent public accountants, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Grupo Cementos de Chihuahua, S.A. de C.V. and Subsidiaries at December 31, 2002 and 2001,
and the consolidated results of their operations, changes in their stockholders’ equity and changes in their financial position for the years then ended, in conformity
with accounting principles generally accepted in Mexico.
Mancera, S.C.
A Member Practice of Ernst & Young Global
C.P.C. José Antonio Reyes Cedeño
Chihuahua, Chihuahua, Mexico
February 10, 2003
20
Consolidated Balance Sheets
(Thousands of Mexican pesos with purchasing power at December 31, 2002)
December 31
2002
2001
Assets
Current assets:
Cash and cash equivalents
Ps
1,494,769
Ps
964,619
Accounts receivable:
Trade, net of allowance for doubtful accounts of Ps. 47,243 and Ps. 32,146
at December 31, 2002 and 2001, respectively
Tax refunds due and other accounts receivable
Inventories
Prepaid expenses
Total current assets
Equity investments
Property, plant and equipment, net
551,235
582,228
159,002
109,021
710,237
691,249
532,848
549,413
33,843
35,234
2,771,697
2,240,515
56,467
65,513
5,537,295
5,550,209
391,417
406,417
126,759
119,338
Goodwill, net of amortization of
Ps. 43,483 in 2002 and Ps. 28,483 in 2001
Other assets
Total assets
Ps
See accompanying notes
8,883,635
Ps
8,381,992
December 31
2002
2001
Liabilities and stockholders’ equity
Current liabilities:
Bank loans and current portion of long-term debt
Ps
192,981
Ps
183,348
Suppliers
107,908
229,465
Other accounts and accrued expenses payable
160,991
106,090
Total current liabilities
461,880
518,903
2,306,206
2,345,727
Long-term debt
Labor obligations
38,348
38,572
599,561
359,085
Deferred income taxes
1,018,722
956,697
Total liabilities
4,424,717
4,218,984
Other long-term liabilities
Stockholders’ equity
Capital stock
655,963
655,963
2,256,339
2,256,339
Stock premiums
730,620
730,620
Reserve for repurchase of Company’s own shares
122,461
122,461
3,301,300
2,792,678
Additional paid-in capital
Retained earnings
Deficit from restatement of stockholders’ equity
(2,334,862)
(2,308,854)
Cumulative effect of deferred taxes
(1,078,040)
(1,078,040)
Effect of translation of foreign subsidiaries
186,172
409,696
Majority net income
617,576
580,782
Majority stockholders’ equity
4,457,529
4,161,645
Minority stockholders’ equity
1,389
1,363
4,458,918
4,163,008
Total stockholders’ equity
Total liabilities and stockholders’ equity
Ps
8,883,635
Ps
8,381,992
21
22
Consolidated Statements of Income
Year ended December 31
2002
Net sales
Ps
Cost of sales
Gross profit
Operating expenses
Operating income
3,455,790
2001
Ps
3,818,885
2,207,121
2,430,229
1,248,669
1,388,656
360,592
399,994
888,077
988,662
Comprehensive financing (income) cost
(11,900)
Other expenses, net
215,898
246,514
58,908
684,079
683,240
66,399
102,299
-
52
617,680
580,889
104
107
Income before income taxes,
and employee profit sharing
Income taxes
Employee profit sharing
Net consolidated income
Minority net income
Majority net income
Ps
Weighted average number of shares outstanding (in thousands)
Earnings per share
617,576
Ps
332,185
Ps
1.86
580,782
332,097
Ps
1.75
Consolidated Statements of Changes in Financial Position
Year ended December 31
2002
2001
Operating activities
Majority net income
Ps
617,680
Ps
580,889
Items not requiring the use of (providing) resources:
Depreciation and amortization
Deferred income tax
Minority interest
326,441
297,436
46,009
28,254
(104)
(107)
990,026
906,472
Variances:
Accounts receivable
23,516
(97,988)
Inventories
18,146
124,380
Other assets
Suppliers and other accounts payable
Resources provided by operating activities
(34,937)
(4,564)
22,969
38,803
1,019,720
967,103
Financing activities
(Decrease) increase in short and long-term
financing
(132,288)
1,731,217
Repurchase of Company’s own shares
-
(52)
Re-placement of Company's own shares
-
18,774
Dividends paid
Resources (used in) provided by financing activities
( 72,160)
(68,341)
(204,448)
1,681,598
Investing activities
Equity investments
-
4,691
Purchase of cement plant
-
1,797,620
Purchase of property, plant and equipment
285,122
629,707
Resources used in investing activities
285,122
2,432,018
Net increase in cash and cash equivalents
530,150
216,683
Cash and cash equivalents at beginning of year
964,619
747,936
Cash and cash equivalents at end of year
Ps
1,494,769
Ps
964,619
23
24
Consolidated Statements of Changes in Stockholders’ Equity
Reserve for
Additional
Balance at December 31, 2000
Ps.
Re-placement of Company’s own shares
repurchase of
Capital
paid-in
Stock
Company’s own
stock
capital
Premiums
shares
655,046
Ps.
2,256,339
Ps.
730,620
Ps.
917
104,657
17,856
Repurchase of Company’s own shares
(52)
Transfer from majority net income
Dividends paid
Result from holding non-monetary assets
Restatement of investment and
movements in minority interest
Majority net income
655,963
2,256,339
655,963
Ps. 2,256,339
730,620
122,461
Transfer from majority net income
Dividends paid
Result from holding non-monetary assets
Restatement of investment and
movements in minority interest
Majority net income
Ps.
Ps.
730,620
Ps.
122,461
25
Deficit from
Cumulative
Effect of
restatement of
effect of
translation of
Majority
majority
Other
Retained
stockholders’
deferred
foreign
net
stockholders’
comprehensive
Comprehensive
earnings
equity
taxes
subsidiaries
income
equity
income
income
Ps. 2,305,755
Ps. (2,202,967)
Ps. (1,078,040)
Ps.
422,637
Total
Ps.
555,264
Ps.
3,749,311
Ps.
990
Ps.
393,512
18,773
(52)
555,264
(555,264)
(68,341)
(68,341)
(105,887)
(12,941)
(105,887)
(105,887)
(12,941)
(12,941)
373
2,792,678
(2,308,854)
(1,078,040)
409,696
580,782
580,782
580,782
580,782
4,161,645
(580,782)
(72,160)
580,782
1,363
$
461,954
(72,160)
(26,008)
(223,524)
(26,008)
(26,008)
(223,524)
(223,524)
26
Ps. 3,301,300
Ps. (2,334,862)
Ps. (1,078,040) Ps.
186,172
Ps.
617,576
617,576
617,576
Ps. 4,457,529
617,576
Ps.
1,389
Ps.
368,044
26
Notes to Consolidated Financial Statements
December 31, 2002 and 2001 (Thousands of Mexican pesos with purchasing power at December 31, 2002
and thousands of U.S. dollars, except for per share values and exchange rates)
1. Operations and Significant Accounting Policies and Practices
Description of the business
Grupo Cementos de Chihuahua, S.A. de C.V. (hereinafter “the Company”) is the holding company whose subsidiaries are engaged primarily in producing and
marketing ready-mix concrete and cement.
The Company is a wholly owned subsidiary of Control Administrativo Mexicano, S.A. de C.V.
Accounting policies and practices
The significant accounting policies and practices observed in the preparation of the financial statements are described below:
a) Basis of consolidation of financial statements
The accompanying consolidated financial statements include the accounts of Grupo Cementos de Chihuahua, S.A. de C.V. and its subsidiaries. The consolidated
subsidiaries and the Company’s equity interest in each are as follows:
Percentage equity interest at December 31
2002
2001
Cementos de Chihuahua, S.A. de C.V.
99.98
99.98
Materiales Industriales de Chihuahua, S.A. de C.V.
99.95
99.95
Transportadora Rarámuri, S.A. de C.V.
99.96
99.96
Concretos Premezclados de Chihuahua, S.A. de C.V.
99.89
99.89
Minera Rarámuri, S.A.
99.98
99.98
Construcentro de Chihuahua, S.A. de C.V.
99.98
99.98
Fincem, S.A. de C.V.
99.99
99.99
100.00
100.00
Promotora de Desarrollos Inmobiliarios de Chihuahua, S.A. de C.V.
99.89
99.89
GCC Cemento, S.A. de C.V.
99.98
99.98
100.00
100.00
GCC Inversiones y Comercialización, S.A. de C.V.
99.99
99.99
GCC Tecnología y Materiales, S.A. de C.V.
99.99
99.99
GCC Chihuahua, S.A. de C.V.
99.95
99.95
GCC Transporte, S.A. de C.V.
99.78
99.78
GCC Comercial, S.A. de C.V.
99.99
-
GCC of America, Inc.
100.00
100.00
GCC Rio Grande, Inc.
100.00
100.00
Rio Grande Materials, Inc.
100.00
100.00
GCC Dacotah, Inc.
100.00
100.00
Mexcement, Inc.
100.00
100.00
GCC of Denver, Inc.
100.00
100.00
GCC Holding Company, LLC.
100.00
100.00
Materiales (Hungary) Investment Group Financing Ltd.
100.00
100.00
Mexican companies
Eurotec de México, S.A. de C.V.
GCC Ingeniería y Proyectos, S.A. de C.V.
Foreign companies (Mainly located in the United States):
Important intercompany balances, investments and transactions were eliminated in the consolidation.
27
Acquisitions, spin-offs and mergers
On February 15, 2002, Cementos de Chihuahua, S.A. de C.V. and Materiales Industriales de Chihuahua, S.A. de C.V., subsidiaries of Grupo Cementos de
Chihuahua, acquired all the outstanding common stock of GCC Comercial, S.A. de C.V., a company engaged in marketing cement, aggregates, gypsum, mortar
and other related products.
On April 30, 2002, the subsidiary Transportes del Chuviscar, S.A. de C.V. changed its name to GCC Transporte, S.A. de C.V.
On October 31, 2002, Grupo Cementos de Chihuahua, S.A. de C.V. signed, through its subsidiary Rio Grande Materials, Inc. (RGM) an agreement to sell most
of the assets of RGM relating to such Company’s concrete business for thousand of USD 8,137. At December 31, 2002, the subsidiary RGM recognized a gain
of USD 2,015 on the sale of such assets. This gain was recorded under other income. Since the sale of its assets, RGM has been engaged in managing its
property.
During the year ended December 31, 2001, the subsidiaries GCC Holding Company, LLC. and Materiales (Hungary) Investment Group Financing Ltd.. were
incorporated, primarily to promote, organize and manage all types of companies.
On March 16, 2001, Grupo Cementos de Chihuahua, S.A. de C.V. finalized the purchase of the assets of Dacotah Cement through the subsidiary GCC Dacotah,
Inc. The Company paid a total of approximately USD 184.0 million for USD 2.9 million in accounts receivable, USD 23.2 million in inventories, USD 122.3 million
in fixed assets, USD 38 million in goodwill, USD 1.9 million in other assets and USD 4.5 million in other liabilities.
On April 11,2001, Grupo Cementos de Chihuahua, S.A. de C.V. and some of its subsidiaries acquired all the outstanding common stock of GCC Tecnología y
Materiales, S.A. de C.V., a company engaged in marketing cement and aggregates, providing information technology services and promoting investments in
affiliated companies.
In March and June 2001, the following subsidiaries were spun off:
Entity created in spin off
Transferring entity
GCC Chihuahua, S.A. de C.V.
Materiales Industriales de Chihuahua, S.A. de C.V.
Transportes Sacramento, S.A. de C.V.
Transportadora Rarámuri, S.A. de C.V.
In July and December 2001, the following companies were merged:
Disappearing company
Surviving company
Vin Concreto de Chihuahua, S.A. de C.V.
Concretos Premezclados de Chihuahua, S.A. de C.V.
Transportes Sacramento, S.A. de C.V.
Transportes del Chuviscar, S.A. de C.V.
Incorporation of foreign subsidiaries
In conformity with Mexican accounting principles Bulletin B-15, Transactions in Foreign Currency and Translation of Financial Statements of Foreign Operations,
the financial statements of foreign subsidiaries have been incorporated into the consolidated financial statements as follows:
- The transactions of foreign subsidiaries are considered an entity.
- The financial statements were restated at December 31, 2002 based on the U.S. consumer price index (CPI). The current year monetary effect was determined
based on the annual inflation factor derived from the CPI.
- Balance sheet and income statement accounts were translated using the prevailing exchange rate at the end of the year. Translation adjustments are reflected
in a separate stockholders’ equity caption known as “Effect of translation of foreign subsidiaries.”
- Exchange differences from financing contracts for the acquisition of subsidiaries abroad are presented under the caption “Effect of translation of foreign
subsidiaries”, considering the investments in such subsidiaries as equivalent to hedges. The exchange gain included in the effect of translation at December
31, 2002 and 2001 was Ps. 271,400 and Ps. 6,352, respectively.
28
- The monetary position gain or loss derived from financing is determined using the price index in the subsidiary’s own country since it is considered an integral
part of the equity investment abroad. Such gain or loss is recorded in the account “Effect of translation of foreign subsidiaries”.
- Goodwill derived from the acquisition of foreign subsidiaries is recorded in the currency in which the equity investment is denominated since it is the currency
in which the goodwill is expected to be recovered. Goodwill is reexpressed based on the rate of inflation in the country in which the subsidiary is located and
the prevailing exchange rate at the balance sheet date.
The financial statements for the year ended December 31, 2001 as originally issued have been reexpressed in constant Mexican pesos with purchasing power
at December 31, 2002, as follows:
- Figures of the parent company and its Mexican subsidiaries were restated using the 2002 inflation factor of 1.0565 derived from the Mexican National
Consumer Price Index (NCPI).
- U.S. dollar amounts reported by foreign subsidiaries were restated using the 2002 U.S. inflation factor of 1.027. Constant U.S. dollar amounts at December
31, 2002 were translated at the prevailing exchange rate at the end of the reporting period, which was Ps. 10.38 per U.S. dollar.
b) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements
and revenues and expenses during the reporting period. Actual consolidated results could differ from these estimates.
c) Recognition of the effects of inflation
The Company recognizes the effects of inflation on financial information as required by Mexican accounting principles Bulletin B-10, Accounting Recognition of
the Effects of Inflation on Financial Information, as amended, issued by the Mexican Institute of Public Accountants. Bulletin B-10 requires that all financial
information presented be expressed in constant Mexican pesos with purchasing power at the latest balance sheet date.
The Company elected to use the specific-cost method to restate inventories.
Capital stock, additional paid-in capital stock premiums, reserve for the repurchase of Company’s own shares, cumulative effect of deferred taxes and retained
earnings were restated based on the NCPI.
The significant inflation accounting concepts and procedures are described below:
Net monetary effect
This represents the effect of inflation on monetary assets and liabilities. The net monetary effect of each year is included in the consolidated statement of income
under the caption “Comprehensive financing (income) cost”.
This consists of the accumulated monetary position result and of the accumulated result from holding non-monetary assets. The result from holding non-monetary
assets represents the difference between the increase in the specific value of non-monetary assets and the increase in the value of such assets based only on
inflation.
d) Cash equivalents
Cash equivalents are stated at cost plus accrued interest, similar to market value.
e) Inventories and cost of sales
Inventories are stated at estimated replacement cost, not in excess of market value.
This caption includes land and the development expenses incurred in order to sell the land on a short-term basis, restated to reflect replacement values based
on an appraisal made by independent experts.
Cost of sales represents the estimated replacement cost of inventories at the time of their sale, restated in constant Mexican pesos at the balance sheet date.
f)
29
Equity investments
Equity investments in companies in which the Company owns between 10% and 50% and over which the Company exercises significant influence are accounted
for using the equity method. Investments in companies in which the Company owns less than 10% are recorded at cost, restated based on the NCPI.
g) Property, plant and equipment
Machinery and equipment of domestic origin are restated using the NCPI.
Imported plant and equipment are stated at their current estimated value based on the rate of inflation in the country of origin and the prevailing exchange rate
at the balance sheet date (i.e., specific restatement factors).
At December 31, 2002, approximately 70% of machinery and equipment of subsidiaries in Mexico was restated based on specific factors.
Depreciation is computed on the restated value of fixed assets using the straight-line method based on the estimated useful lives of the related assets as
determined by management periodically.
Comprehensive financing costs incurred during the building and installation period are capitalized. Such costs are restated using the NCPI.
h) Derivatives
Requirements of Mexican accounting principles Bulletin C-2, Financial Instruments, went into effect on January 1, 2001. Bulletin C-2 establishes the basic rules
that issuers of or investors in financial instruments must observe in valuing, presenting and disclosing such instruments in their financial information. These rules
define the conditions that must be met in order to offset financial assets and liabilities. They also specify that financial instruments are to be valued at their fair
value, except for those instruments classified as “held to maturity”, which are to be valued at acquisition cost. Gains or losses determined on the valuation of
financial instruments, as well as the related costs and returns, are credited or charged to operations of the year.
Derivatives that serve as hedges are valued following the same criteria used to value the hedged assets and liabilities. Gains or losses determined on the
valuation of derivatives are credited or charged to operations, net of the costs, expenses or income derived from the hedged assets or liabilities.
i)
Goodwill
Goodwill determined on the acquisition of shares for a higher price than the carrying value of such shares by the issuer is being amortized over a period of 20
years, which represents the estimated term this investment will gain benefits.
j)
Exchange differences
Transactions in foreign currency are recorded at the prevailing exchange rate on the day of the related transactions. Exchange differences determined from the
date of the transactions to the time of their settlement or valuation at the balance sheet date are charged or credited to income.
k) Labor obligations
Under Mexican labor law, the Company has a liability for severance payments accruing to workers in certain circumstances. It is the policy to charge termination
payments to costs and expenses of the year in which the decision to dismiss a worker is made. The liability for seniority premiums is recognized periodically
on the basis of actuarial computations.
l)
Deferred income tax, asset tax and deferred employee profit sharing
In conformity with the Bulletin D-4, Accounting for Income Tax, Asset Tax and Employee Profit Sharing, deferred taxes are recognized on basically all temporary
differences in balance sheet accounts for financial and tax reporting purposes, using the enacted income tax rate at the time the financial statements are issued.
In conformity with Bulletin D-4, the cumulative effect of deferred taxes at the beginning of 2000 was applied to stockholders’ equity, without restructuring the
financial statements of prior years.
30
Income tax for the year ended December 31, 2002, was charged to results of operations and represents a liability due and payable in a period of less than one
year.
The Company evaluates periodically the possibility of recovering deferred tax assets and, if necessary, adjusts the related reserve.
In conformity with Bulletin D-4, deferred employee profit sharing is recognized only on temporary differences determined in the reconciliation of current year net
income for financial and tax reporting purposes, provided there is no indication that the related liability or asset will not be realized in the future.
Employee profit sharing should be charged to results of operations and represents a liability due and payable in a period of less than one year.
In conformity with Bulletin D-4, asset tax is considered a tax prepayment, which is offset against deferred income tax.
m) Recognition of revenue
Revenues from sales of cement are recognized at the time the product is shipped and billed to the customer. Revenues from sale of ready-mix concrete are
recognized when the product is delivered at the construction site.
n) Earnings per share
Earnings per share of common stock are computed based on the average weighted number of shares of common stock outstanding.
o) Comprehensive income
Requirements of Mexican accounting principles Bulletin B-4, Comprehensive Income, went into effect on January 1, 2001. Bulletin B-4 establishes the rules for
reporting and presenting comprehensive income and the component elements of such income. The adoption of the requirements of Bulletin B-4 has no effect
on net income for the period or on stockholders’ equity. Comprehensive income consists of the net income for the period plus, if applicable, those items that
are reflected directly in stockholders’ equity and that do not constitute capital contributions, reductions or distributions.
2. Related Parties
In the years ended December 31, 2002 and 2001, the Company had the following transactions with related parties:
2002
2001
Other expenses, net
Ps.
11,246
Ps.
11,348
Interest income
Ps.
146
Ps.
574
3. Inventories
Inventories consist of the following at December 31:
2002
Finished goods
Ps.
Work in process
87,584
2001
Ps.
107,243
41,483
45,453
Raw materials and supplies
233,690
227,845
Land held for sale
170,091
168,872
Ps.
532,848
Ps.
549,413
The allowance for obsolete and slow-moving inventories at December 31, 2002 and 2001 is Ps. 5,140 and Ps. 3,444, respectively. Such amounts have been
deducted from “Raw materials and supplies.”
31
4. Equity Investments
The Company’s equity investments consist of the following at December 31:
2002
2002
2001
2001
Affiliated company:
Promotora de Hospitales Mexicanos, S.A. de C.V.
Ps.
41,478
Ps.
53,584
Long-term investments:
809
2,267
Servicios de Previsión Integral, S.A. de C.V.
Promotora de Infraestructura de México, S.A. de C.V.
6,897
5,278
Other
7,283
4,384
Ps.
56,467
Ps.
65,513
5. Property, Plant and Equipment
Property, plant and equipment consist of the following at December 31:
2002
Buildings
Ps.
Machinery and equipment
1,775,133
2001
Ps.
5,689,020
1,758,547
5,218,965
Automotive equipment
449,830
408,174
Furniture and fixtures
139,218
113,193
Accumulated depreciation
Net carrying value
8,053,201
7,498,879
(3,164,254)
(2,897,724)
4,888,947
4,601,155
Land
526,648
508,545
Investment projects
115,640
415,205
6,060
25,304
Advances to suppliers
Ps.
5,537,295
Ps.
5,550,209
Investments made to obtain permits, licenses, geologic studies for the possible construction of a cement plant in the United States.
The Company capitalized in machinery and equipment, the comprehensive financing cost of Ps.44,806, which will be amortized over the useful life of the related
machinery and equipment, which is 16 years.
32
Depreciation and amortization charged to operations of the years ended at December 31, 2002 and 2001 was Ps. 326,441 and Ps. 297,436, respectively.
Depreciation was computed considering the estimated remaining useful lives of the assets determined by management. Such lives are as follows:
Estimated remaining useful life
December 31,2002
Buildings
31 years
Machinery and equipment
15 years
Furniture and fixtures
6 years
Automotive equipment
6 years
6. Other Assets
Other assets consist of the following at December 31:
2002
Preoperating expenses and software licenses
Ps.
34,133
2001
Ps.
39,067
Systems development
35,792
33,224
Intangible asset
15,977
18,253
6,709
1,224
34,148
27,570
Inventory of spare parts for machinery and equipment
Other assets
Ps.
126,759
Ps.
119,338
33
7. Bank Loans
An analysis of bank loans and long-term debt is as follows:
2002
2002
Maturities
Current portion
Interest
Loans
Currency
rate
of long-term
Long-term
debt
debt
Amount
Syndicated
Agent bank
BBVA Bancomer, S.A.
Dollar
Libor+1.00
BBVA Bancomer, S.A.
Dollar
Libor+1.25
Dollar
Dollar
Dollar
Dollar
Ps.
259,500
Ps.
103,800
Ps.
155,700
726,600
-
726,600
Libor+0.375%
64,577
25,831
38,746
Libor+0.75%
15,216
6,485
8,731
Libor + 0.375%
2,446
2,446
-
7.76%
3,606
3,606
-
Dollar
5.86%
46,049
7,084
38,965
Dollar
Libor +.70%
4,362
671
3,691
Dollar
5.42%
12,675
3,169
9,506
Banorte, S.A.
Peso
Cetes+2.7
2,850
1,800
1,050
Banorte, S.A.
Peso
Cetes+2.7
3,895
2,460
1,435
BBVA Bancomer, S.A.
Peso
CPP + 1.5
503
503
-
Banamex, S.A.
Peso
Cetes+2.25
35,291
7,429
27,862
Banamex, S.A.
Peso
Cetes+2.25
45,386
5,920
39,466
Banamex, S.A.
Peso
Cetes+2.6
43,386
12,698
30,688
Banamex, S.A.
Peso
Cetes+2.6
31,284
8,730
22,554
Bital, S.A.
Peso
Tiie+1
1,561
349
1,212
Peso
11.5%
1,200,000
-
1,200,000
192,981
Ps. 2,306,206
Export credit agencies
The Chase Manhattan
Bank, N.A.
Chase Bank, A.G.
First National Bank
of Maryland
Banca Serfin, S.A.
Banco Santander
Central Hispano, S.A.
Banco Santander
Banco Santander
Collateralized loans
Unsecured loan
Domestic bond
Public investors
Ps. 2,499,187
Ps.
34
2001
Maturities
Current portion
Interest
Loans
Currency
rate
Comerica Bank, N.A.
Dollar
Libor+1.25
Dollar
Libor+1.05
of long-term
Long-term
debt
debt
Amount
Ps.
278,266
Ps.
92,755
Ps.
185,511
Revolving/ term loan
BBVA Bancomer, S.A.
580,018
-
580,018
Export credit agencies
The Chase Manhattan
Bank, N.A.
Dollar
Libor+0.375%
84,199
24,051
60,148
Dollar
Libor+0.75%
20,211
6,043
14,168
Dollar
Libor + 0.375%
6,833
4,557
2,276
Dollar
7.20% - 7.76%
10,075
6,719
3,356
Dollar
5.86%
46,274
3,307
42,967
Dollar
Libor +.70%
4,530
285
4,245
Dollar
5.42%
14,755
2,952
11,803
Banorte, S.A.
Peso
Cetes+2.7
6,715
2,600
4,115
BBVA Bancomer, S.A.
Peso
CPP+1.5
1,596
1,062
534
Banorte, S.A.
Peso
Cetes+2.7
4,913
1,902
3,011
Banamex, S.A.
Peso
Cetes+2.25
45,127
7,849
37,278
Banamex, S.A.
Peso
Cetes+2.25
54,204
6,254
47,950
Banamex, S.A.
Peso
Cetes+2.6
59,255
13,417
45,838
Banamex, S.A.
Peso
Cetes+2.6
42,275
9,225
33,050
Bital, S.A.
Peso
Tiie+1
2,029
370
1,659
Peso
11.5%
1,267,800
-
1,267,800
183,348
Ps. 2,345,727
Chase Bank, A.G.
First National Bank
of Maryland
Banca Serfin, S.A.
Banco Santander
Banco Santander
Banco Santander
Collateralized loans
Unsecured loan
Domestic bond
Public investors
(Ps.1,200,000 face value )
Ps. 2,529,075
Ps.
35
Maturities on the long-term debt at December 31, 2002 are as follows:
Year ending December 31
2004
Amount maturing
Ps.
257,006
2005
331,397
2006
1,489,326
2007
201,059
Thereafter
27,418
Ps.
2,306,206
On April 29, 2002, Grupo Cementos de Chihuahua, S.A. de C.V. obtained a syndicated loan of USD 100 million from six banking institutions, in two tranches.
Tranche A for USD 30 million, repayable in six equal installments from November 4, 2002 through May 2, 2005. The loan beans a variable interest rate based
on the six-month LIBOR rate plus a variable percentage range from 1.00% at the outset to 1.125% from the second year.
Tranche B for USD 70 million, repayable in six installments, the amount of which will increase progressively, from November 2, 2004 through May 2, 2007. The
loan bears a variable interest rate based on the six-month LIBOR rate plus a percentage ranging from 1.25% at the outset to 1.625% in the fifth year.
GCC Cemento, S.A. de C.V. and Cementos de Chihuahua, S.A. de C.V. act as guarantors of the loan.
On December 14, 2001, Grupo Cementos de Chihuahua, S.A. de C.V. issued through the Mexican Stock Exchange bonds for a total of Ps. 1,200,000
(12,000,000 bonds with a face value of Ps. 100 each). The specified annual interest rate is 11.5%, which shall remain fixed over the term of the issue. Interest
is payable semiannually , starting on June 14, 2002.
The principal amount is to be repaid in a bullet payment on December 14, 2006 (the maturity date of the issue). The resources obtained from the issue were
used to repay the debt contracted to acquire the assets of Dacotah Cement. The bonds are unsecured and are guaranteed by Cementos de Chihuahua, S.A.
de C.V. and GCC Cemento, S.A. de C.V.
During the year ended December 31, 2001, the Company entered into cross currency swaps whereby it converted to the U.S. dollar the principal and interest
on the bonds issued through the Mexican Stock Exchange for a total of Ps. 1,200,000. During the life of this contract, the cash flow from the interchange of
rates agrees in dates and conditions with the payments of interests generated by the underlying liabilities.
This was done as a strategy to achieve a balance between the currency in which financial liabilities are denominated and the liabilities in the country in which
cash flows are generated.
Some long-term debt agreements contain minor restrictive covenants and others establish financial ratios which, if not observed or corrected within a defined
period of time to the satisfaction of the creditors could result in the acceleration of the maturity of the debts. At December 31, 2002, the companies have
observed all financial ratios and the terms of restrictive covenants.
36
8. Foreign Currency Position
The Company has the following U.S. dollar denominated assets and liabilities at December 31, 2002 and 2001:
2002
2001
Current assets
USD
125,185
USD
116,235
Total assets
USD
125,185
USD
116,235
Short-term liabilities
27,651
26,509
Long-term liabilities
267,966
257,930
Total liabilities
295,617
284,439
Net short position
USD
170,432
USD
168,204
The exchange rates used to translate the U.S. dollar denominated assets and liabilities to Mexican pesos at December 31, 2002 and 2001 were Ps. 10.38 and
Ps. 9.15, respectively. The exchange rate at February 10, 2003 is Ps.10.87.
Machinery and equipment is mostly imported. An analysis is as follows:
2002
2001
Amount
Currency
Amount
in foreign
Exchange
in foreign
Exchange
currency
rate
currency
rate
U.S. dollar
$
218,399
Ps.
10.38
$
211,151
Ps.
9.15
German mark
$
51,415
Ps.
4.77
$
32,727
Ps.
4.22
Danish crown
$
19,503
Ps.
6.23
$
39,881
Ps.
5.47
During the periods ended December 31, 2002 and 2001, foreign currency denominated export sales, principally made by GCC Cemento, S.A. de C.V.,
aggregated USD 18,918 and USD 25,079 (thousand), respectively.
9. Labor Obligations
The Company recognizes the liability for seniority premiums based on actuarial computations, using the projected unit-credit method.
The net period cost and the components of the seniority premium plan allowance at December 31, 2002 and 2001 are as follows:
2002
2001
Current benefit obligation
Ps.
52,878
Ps.
52,287
Projected benefit obligation
Ps.
67,651
Ps.
59,043
Unamortized transition liability
Ps.
15,687
Ps.
18,332
Plan assets
Ps.
379
Ps.
382
Unamortized variances in assumptions and experience adjustments
Ps.
28,869
Ps.
13,699
Net projected liability
Ps.
22,371
Ps.
20,319
Additional liability
Ps.
15,977
Ps.
18,253
Net period cost
Ps.
10,252
Ps.
9,314
Intangible asset
Ps.
15,977
Ps.
18,253
The unamortized items will be amortized over a period of 20 years from 2002.
The significant assumptions considered in determining the net period cost are as follows at December 31:
Real rates
2002
2001
Discount rate
5.00 %
4.50 %
Rate of pay increases
1.50 %
1.50 %
37
38
10. Stockholders’ Equity
a) Capital stock is variable. The fixed minimum is Ps.132,874 (Ps. 655,963 in constant pesos), represented by 337,400,000 shares with no par value.
b) At a regular meeting held on April 30, 2002, the stockholders declared a cash dividend of Ps.69,759 (Ps. 72,160 in constant pesos), at Ps. 0.21 per share.
c) At a regular meeting held on April 24, 2001, the stockholders declared a cash dividend of Ps.63,115 (Ps. 68,341 in constant pesos), at Ps. 0.19 per share.
d) During the year the Company did not repurchase any of its own shares. At December 31, 2002 had 5,214,993 treasury shares for a total of Ps. 37,524. Such
shares represent 1.5% of the Company’s outstanding shares. At December 31, 2002 the Company has 332,185,007 outstanding shares. The balance of the
reserve available for the repurchase of the Company’s own shares is Ps. 122,461.
e) An analysis of stockholders’ equity at December 31, 2002 is as follows:
December 31, 2002
Restatement
Historical
Capital stock
Ps.
increment
132,874
Ps.
523,089
Total
Ps.
655,963
Additional paid-in capital
462,736
1,793,603
2,256,339
Stock premium
160,635
569,985
730,620
60,000
62,461
122,461
2,073,627
1,227,673
3,301,300
(2,334,862)
(2,334,862)
Reserve for repurchase of Company’s own shares
Retained earnings
-
-
Cumulative effect of deferred taxes
(897,012)
Net majority income
Total
186,172
(181,028)
598,591
Ps.
2,591,451
186,172
(1,078,040)
18,985
Ps.
1,866,078
617,576
Ps.
4,457,529
In conformity with the Mexican Corporations Act, at least 5% of the net income of each year must be appropriated to increase the legal reserve. This practice
must be continued until the legal reserve reaches 20% of capital stock issued and outstanding.
Dividends paid from sources other than the net tax profit account (CUFIN) will be subject to taxation. However, no payment may be made from this account until
the net recoverable tax profit account (CUFINRE) balance has been exhausted.
39
When dividends are paid from the CUFINRE balances, the Company may remit the 5% deferred tax on earnings for 2001 and 2000 and the 3% deferred tax on
earnings for 1999.
Any amount distributed in excess of net tax account balances will be taxed it the 34% corporate income tax rate.
11. Comprehensive Financing (Income) Cost
Comprehensive financing (income) cost consists of the following at December 31:
2002
Interest income
Ps.
Interest expense
(47,220)
2001
Ps.
106,901
Exchange differences, net
23,440
Net monetary effect
223
(95,021)
Ps.
(57,149)
183,426
(11,900)
(67,592)
Ps.
58,908
12. Segment information
The Company is a Mexican corporation that operates in only one segment, which is the production and marketing of hydraulic cement and ready-mix concrete.
The Company’s transactions in the United States are carried out by three wholly owned subsidiaries.
In the following list, the column on Mexico includes all of the domestic transactions:
2002
Mexico
United
Eliminations and
States
others adjustments
Consolidated
Net sales:
Unaffiliated customers
Ps.
Intercompany transfers
1,861,478
Ps.
1,317,857
1,594,312
Ps.
53,975
-
Ps.
(1,371,832)
3,455,790
-
Ps.
3,179,335
Ps.
1,648,287
Ps.
(1,371,832)
Ps.
3,455,790
Pretax income
Ps.
388,140
Ps.
305,424
Ps.
(9,485)
Ps.
684,079
Ps.
216,291
Ps.
110,150
Ps.
Ps.
326,441
Total assets
Ps.
5,042,642
Ps.
3,850,478
Ps.
Ps.
8,883,635
(9,485)
40
2001
Mexico
United
Eliminations and
States
others adjustments
Consolidated
Net sales:
Unaffiliated customers
Ps.
Intercompany transfers
2,140,788
Ps.
1,127,266
1,678,097
Ps.
68,686
-
Ps.
(1,195,952)
3,818,885
-
Ps.
3,268,054
Ps.
1,746,783
Ps.
(1,195,952)
Ps.
3,818,885
Pretax income
Ps.
465,079
Ps.
222,049
Ps.
(3,888)
Ps.
683,240
Ps.
181,700
Ps.
115,736
Ps.
-
Ps.
297,436
Total assets
Ps.
4,845,702
Ps.
3,540,178
Ps.
(3,888)
Ps.
8,381,992
13. Income Tax, Asset Tax and Employee Profit Sharing
a) Companies in Mexico are subject to payment of the higher of either corporate income tax or asset tax. In the year ended December 31, 2002, the Company
and its subsidiaries began to determine corporate income tax and asset tax on a consolidated basis, except for GCC Comercial, S.A. de C.V., which will begin
to consolidate in 2003.
b) An analysis of income tax charged to results of operations of the years ended December 31, 2002 and 2001 is as follows:
2002
Current year income tax
Ps.
Deferred income tax
Total income tax
66,690
2001
Ps.
(291)
Ps.
66,399
74,045
28,254
Ps.
102,299
Since current tax legislation recognizes partially the effects of inflation on certain items that give rise to deferred taxes, the current year net monetary effect on
such items of Ps. 46,300 has been reclassified from the current year monetary position result to current year deferred income tax. Also, the current year result
from holding non-monetary assets of Ps. 33,850 has been reclassified to current year deferred income tax.
41
c) The major temporary differences that gave rise to a deferred income tax liability under the new Mexican accounting principles Bulletin D-4 were as follows:
December 31,
December 31,
2002
2001
Deferred tax asset:
Liability provisions
Ps.
Advances from customers
33,998
Ps.
52,624
Asset tax paid in prior years
Tax losses from prior years
Valuation allowance
24,683
29,179
23,722
8,874
428,979
176,900
539,323
239,636
(353,196)
(89,534)
186,127
150,102
Deferred tax liability:
Fixed assets
949,853
913,247
Inventories
115,848
156,493
Effect of foreign subsidiaries prepaid expenses an other
Deferred income tax liability, net
Ps.
139,148
37,059
1,204,849
1,106,799
1,018,722
Ps.
956,697
d) The major items that gave rise to a difference between the total amount of current year income tax and the current year deferred tax determined at the statutory
rate are as follows:
2002
Tax on pretax income (34% rate)
Ps.
232,586
Permanent items:
Non-deducible expenses
6,260
Inflation adjustments, net of monetary position result
(2,789)
Translation adjustment
(92,276)
Release of valuation allowance
(50,072)
Effect of restatement and other items
(27,310)
Total income tax
Ps.
66,399
42
e) An analysis through 2002 of the available asset tax refund that may be requested, restated for inflation, in future years whenever income tax exceeds asset tax
payable is as follows:
Year in which asset
Restated
Refund
tax was paid
amount
expiration date
1993
84
2003
1995
Ps.
1,935
2005
1996
2,764
2006
1997
219
2007
1999
302
2009
2000
2,053
2010
2001
4,135
2011
2002
12,230
2012
Ps.
f)
23,722
At December 31, 2002, Grupo Cementos de Chihuahua, S.A. de C.V. and some of its subsidiaries have operating tax losses of approximately Ps. 1,261,708
that may be carried forward against taxable income of future years. An analysis is as follows:
Year in which
Year in which
Amount of loss
loss was
carryforward
restated to
deferred
incurred
expires
December 31, 2002
income tax
1995
2005
1996
2006
135,272
45,992
1997
2007
182,323
61,990
1998
2008
140,431
47,746
1999
2009
386,063
131,261
Ps.
90,013
Effect on
Ps.
30,604
2000
2010
8,665
2,946
2001
2011
158,281
53,816
2002
2012
160,660
54,624
Ps.
1,261,708
Ps.
428,979
g) Balances of the restated contributed capital account (CUCA), net tax profit account (CUFIN) and net reinvested tax profit account (CUFINRE) at December 31,
2002 were Ps. 2,940,178, Ps. 111,051 and Ps. 233,069, respectively.
h) The Bulletin D-4 does not significantly affect how employee profit sharing is accounted for.
Employee profit sharing is determined basically on tax results, excluding the inflation adjustments and the restatement of depreciation expense.
43
14. Anti-dumping duties
In 1990, the United States Department of Commerce (DOC) imposed an anti-dumping duty order on imports of Gray Portland Cement and Clinker from Mexico.
As a result, beginning September 1994, GCCRG has been subject to the payment of estimated anti-dumping duty deposits (which are expensed as incurred) on
imports of Gray Portland Cement and Clinker from Mexico.
The Mexican Government initiated a formal complaint against the United States Government under the General Agreement on Tariffs and Trade (GATT) for alleged
violations of GATT obligations in the anti-dumping case. On July 9, 1992, a dispute settlement panel formed under the auspices of the GATT determined that the
United States violated the GATT anti-dumping code and its own anti-dumping law, by imposing anti-dumping duties on Mexican cement. The panel stated that the
United States must revoke the anti-dumping order and refund all anti-dumping duties that have been paid. Although this GATT panel decision is not independently
enforceable under United States law, since November 1992, the United States and Mexican Governments have been engaged in consultations seeking a
settlement that would include implementation of the GATT panel recommendations.
From October 1995 through April 1997, the DOC performed its Fifth Administrative Review, covering sales of imported Mexican cement, made during the period
from August 1994 through July 1995. The DOC published its final determination on April 1997, establishing a dumping margin rate of 73.69%. In June 1997,
GCCRG requested a review by a NAFTA Panel of DOC’s final determination on the Fifth Administrative Review. In June 1999, the NAFTA binational panel decided,
among other minor issues, that the DOC incorrectly compared sales of both bulk and bagged cement in Mexico with only bulk cement in the United States, and
instructed the DOC to recalculate the dumping margin for the Fifth Administrative Review excluding from the comparisons the bagged cement in Mexico. In
November 1999, the DOC issued its amended final results of the Fifth Administrative Review pursuant to the Panel’s instructions, calculating a dumping margin
of 44.89% (a decrease from the original 73.69%). The DOC requested a NAFTA extraordinary challenge committee to review the Panel’s decision.
From October 1996 through March 2002, the DOC performed its Sixth, Seventh, Eighth, Ninth, Tenth and Eleventh Administrative Reviews, covering sales of
imported Mexican cement, made during the period from August 1995 through July 2001. The DOC published its final determination for the Sixth Administrative
Review in March 1998, establishing a dumping margin rate of 37.49%. The DOC published its final determination for the Seventh Administrative Review
establishing a dumping margin rate of 49.58%, an oral argument before the NAFTA panel review was scheduled for February 27, 2002. The DOC published its
final determination for the Eighth Administrative Review establishing a dumping margin rate of 45.98%. In March 2001, a dumping margin of 39.34% was
established and then amended in May 2001 to 38.65% for the Ninth Administrative Review. In March 2002, a dumping margin of 55.98% was established for
the Tenth Administrative Review. In November 2002, a preliminary dumping margin of 74.78% was established and then amended in January 2003 to 73.74%
for the Eleventh Administrative Review. GCCRG has requested a review by a NAFTA Panel of all the DOC’s final determination on the Sixth, Seventh, Eighth, Ninth,
Tenth and Eleventh Administrative Reviews.
In October 2002, the DOC initiated its Twelfth Administrative Review, covering sales of imported Mexican cement, made during the period from August 2001
through July 2002. The DOC will publish its final determination in September 2003.
On August 2, 1999 the International Trade Commission of the United States (ITC) initiated the Sunset Review of the anti-dumping order on Gray Portland Cement
and Clinker from Mexico. The ITC reviewed the potential effect of revoking the order on the United States cement industry. On October 9, 2000, the ITC voted
not to revoke the order, and thus the U.S. Customs Service will continue collecting anti-dumping deposits.
Should the actual margin on the different administrative reviews be determined to be less than the amount of anti-dumping duties already deposited with the U.S.
Customs Service, the difference, together with interest, will be refunded to GCCRG. Should the actual margin be determined to be greater than the initial margin,
then additional payments, including interest, will be required.
GCCRG has estimated to the best of its ability, the potential refunds or liabilities for the different administrative reviews, and depending on the final decisions by
the NAFTA panels regarding the comparison of sales made in sack versus sales made in bulk. Except for the Fifth Administrative Review, sufficient information
is not currently available to GCCRG to reasonably estimate the outcome of the many appeals of the administrative reviews, or the administrative decisions in the
pending Tenth and Eleventh Administrative Reviews. As of December 31, 2002 and 2001, GCCRG has funded an irrevocable trust for estimated anti-dumping
costs for thousand of USD 40,000 and 31,500, respectively, in excess of amounts paid. The purpose of the trust is to pay estimated anti-dumping duty liabilities
resulting from prior year reviews. As of December 31, 2002 and 2001, GCCRG had accrued additional amounts of thousand of USD 916 and 1,404,
respectively, for estimated anti-dumping costs in excess of amounts paid to the DOC and to the irrevocable trust. These amounts are included in other longterm liabilities in the accompanying consolidated balance sheets.
44
15. Commitments and Contingencies
a) In 1996, the subsidiary GCC Rio Grande, Inc. submitted to the State of New Mexico a plan as required by the State Mining Act for the proposed use of the plant
site and required reclamation of the land at the conclusion of operations. The estimated cost of the plan is thousand of USD 4,800. At December 31, 2002 and
2001, the liability provided for under the plan is thousand of USD 955 and 775, respectively.
The State requested that GCCRG secure a form of bonding or surety related to the closeout measures. To comply with the State’s request GCCRG has a bond
totaling thousand of USD 70 related to USDA Forest Service property. In addition, GCC has guaranteed thousand of USD 3,750 of assurance in the event that
GCCRG fails to successfully complete the reclamation obligations.
b) At December 31, 2002 the subsidiary Cementos de Chihuahua, S.A. de C.V. has been notified by the Ministry of Finance and Public Credit that in exercising its
review powers it determined a tax liability for the year ended December 31, 1999. Such tax liability is for Ps. 36,737 and is derived from the deduction of the
loss on the sale of shares. Cementos de Chihuahua has appealed and expects the tax liability determined by the authorities to be overturned by the courts.
16. Derivatives
The Company uses financial instruments (derivatives) such as swaps and forward contracts to manage risks associated with the economic effect of the exchange
of interest rates. Derivatives are not used for the purpose of speculation or for sale. The related agreements are entered into with sound financial institutions;
consequently, the Company believes the risk of non-performance of agreed obligation by the other parties to be minimal.
Cross Currency Swaps:
Exchanged
Estimated
Expiration
Interest rate
interest
market
date
covered
rate
value
Dollars for pesos USD $ 98.8 million dollars
December 2006
11.5%
Six-month LIBOR + 65bp
$
9,370
Dollars for pesos USD $ 33.0 million dollars
December 2006
11.5%
Six-month LIBOR + 139bp
$
4,240
The periodic cash flows for the exchange of interest rates are recognized as part of the comprehensive cost of financing as the effective interest rate on the
related liabilities.
COMPANY
PROFILE
OPERATION
INVESTOR
RELATIONS
CENTERS
NORTH DAKOTA
MONTANA
MINNESOTA
WATERTOWN
SOUTH DAKOTA
BROOKINGS
MOORCROFT
RAPID CITY
SIOUX FALLS
CASPER
WYOMING
NEBRASKA
Chihuahua.
DENVER
COLORADO
KANSAS
ALBUQUERQUE
TIJERAS
NEW MEXICO
CD. JUÁREZ
EL PASO
TEXAS
SAMALAYUCA
HEADQUARTERS
CHIHUAHUA
OFFICE
CHIHUAHUA
STRATEGIC
(52 614) 442 3100
INTENT
www.gcc.com
INVESTOR
CEMENT
CEMENT
PLANTS
RELATIONS
(METRIC TONS)
Denver, Colorado
900,000
885,000
140,000
Tijeras, New Mexico
450,000
950,000
El Paso, Texas
[email protected]
(52 614) 442 3217
(52 614) 442 3100
Casper, Wyoming
Moorcroft, Wyoming
CONCRETE
OPERATIONS
CONCRETE BLOCK
OPERATIONS
Chihuahua: 2 plants
AGGREGATES
Chihuahua: 1 plant
OPERATIONS
Design:
customers needs.
Chihuahua: 4 plants
milenio3.com.mx
PURPOSE
GCC
CONTENTS
1
2
8
MEXICO DIVISION
12
16
BOARD OF DIRECTORS
16
ANNUAL REPORT
17
2002
18

2002 - Gcc

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